Overlords Soak City

San Diego  Rescuing city finances may be futile as long as the society remains feudal. That is to say, San Diego's overlords are making sure they will get their corporate welfare -- no matter how broke the city is -- while the vassals pick up the tab.

In Europe's Middle Ages, the vassal swore fealty to the overlord, who raked in bucks from the serfs' labors. Today, the peasants elect politicians who are supposed to represent the underlings' interests. But instead, the politicians secretly pledge fealty to the overlord, who is slipping them money. The result is corporate welfare, and San Diego will never dig out of its $2 billion employee pension/healthcare hole until it cuts off the charity flow to the barons.

The city's January 27 admission that it is at or near the financial brink and has been covering it up since 1996 with phony accounting has apparently spurred the nobles to defend their God-given turf. On February 4, Jessie J. Knight Jr., president of the San Diego Regional Chamber of Commerce, wrote a letter to his members, speaking urgently of "the city of San Diego budget woes."

The budget deficit will be huge, warned Knight, urging members to get involved in the budget process to make sure business gets its due. "We cannot afford the risks to the business community to solely depend on our elected officials to provide solutions," wrote Knight. "History suggests that in times of crisis, it is the business community that suffers disproportionately."

History suggests no such thing. Indeed -- in San Diego in particular -- history suggests exactly the reverse: in a crisis, business gets its piece of the pie, and taxpayers get the crumbs, as well as the bill. That's because over the years, the nobles have rigged the system in their favor.

On February 6, only two days after Knight penned his letter, a seemingly innocuous memo to the mayor and councilmembers from deputy city manager Bruce A. Herring unwittingly spelled out how the overlords arrange for their own welfare.

Herring was outlining how the city would pay for the huge expenses related to Petco Park. He discussed possible sources of revenue from the facility. He explained that during the baseball season, the Padres get 70 percent of nonbaseball revenues, and the city gets 30 percent. In the off-season, the city gets 70 percent and the Padres 30 percent.

Then came this revelation: "However, it may be necessary to restrict or limit the amount of special-event revenues the city receives to preserve the tax-exempt status of the ballpark refunding bonds."

What's this? A nearly bankrupt city forfeiting revenue? It's another example of the great scam that pro-sports barons pull on cities. In this case, the greedy owners got the unintended help of Congress. Back in 1986, federal legislators were trying to remove the gross inequities in the tax code -- particularly the use of tax-free municipal bonds to subsidize private ventures that should have been required to issue taxable bonds.

In the process, the solons were actually trying to rein in team owners' fleecing of taxpayers. The lawmakers said that for stadium bonds to be tax-exempt -- thus qualifying for lower interest rates -- no more than 10 percent of stadium revenues could go to municipalities. The politicians reasoned that with such piddling revenues, cities would nix using public funds to build stadiums.

But reason has nothing to do with pro-sports subsidies. Compliant cities quickly figured that the stadium lease could be drawn up so that total government revenues -- from parking or whatever -- would be below 10 percent. The owners would rake in more than 90 percent of the revenue. Then the bonds could be tax-exempt. The politicians had figured that no city would be that dumb, but cities were indeed that dumb, or corrupt. The book Field of Schemes describes how the late Senator Daniel Patrick Moynihan, who had helped craft the legislation, was appalled that it essentially was "forcing cities to fund only facilities that were guaranteed money losers."

Asked Moynihan, "Who would have thought that local officials, in order to keep or get a team, would capitulate to team owners -- granting concessionary stadium leases and committing limited government revenues to repay stadium debt, thereby hindering their own ability to provide schools, roads, and other public investments?"

Stadium-related revenue can't be used to pay more than 10 percent of the debt service on the bonds, or they will be deemed ineligible for tax-exempt status. Hence, Herring warned that revenues may have to be forfeited. The city, as usual, did not return calls.

Before 1986, municipalities that poured money into stadiums required teams to pay at least respectable rent. But since 1986, teams have expected to rake in that 90 percent-plus. The Chargers and city officials have defended the 60,000-seat guarantee by saying that, after all, the Chargers pay high rent compared with other teams in the National Football League. Ha, ha. Thanks to the 1986 tax package, those other teams pay ridiculously low rents. They consider it their entitlement, and governments protect it more than peasant entitlements, such as adequate police and fire protection.

In many ways, San Diego's new ballpark is a classic example of overlord self-aggrandizement. The city defends the deal by saying that the peasants voted for it. Not so. The voters were told that it would involve no new taxes because of all the tax-generating hotels and business establishments that would spring up around it. But the surrounding development has been mainly condos, which eat up more in infrastructure expense than they produce in taxes. That tax-generating development is years away.

Former councilmember Bruce Henderson, who has been right about the project all along, estimates that the ballpark will cost taxpayers more than $27 million a year -- $16 million in interest, $3.5 million for maintenance, and close to $8 million in opportunity cost, or what the city lost because ballpark cash outlays did not go to other critical needs. Ballpark bond refinancing -- now a long way off -- could reduce interest costs somewhat, but the bite will still be huge.